Mechanism Design for 'Free' But 'No Free Disposal' Services: The Economics of Personalization under Privacy Concerns

Chellappa, Ramnath K.; Shivendu, Shivendu

doi:10.2139/ssrn.991384

Cited by 16 publications

(16 citation statements)

References 23 publications

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“…This relationship is assumed to be deterministic, and is common knowledge to all parties in the market. Similar treatments can be found in Chellappa and Shivendu (2010).…”

Section: Literature Reviewsupporting

confidence: 57%

“…Further, individuals may experience different levels of privacy concerns even in disclosing the same amount of information. Such systematic differences in the preference for privacy, which is referred to as "privacy sensitivity" and is typically unobservable to a thirdparty (Chellappa and Shivendu 2010), may be attributed to individuals defining information spaces of their social lives differently, being exposed to different situational cues and primed differently with the consequences, or placing different probabilities or values on a given outcome (Hann et al 2007).…”

Section: Literature Reviewmentioning

confidence: 99%

“…In addition to the rich literature in economics on both theoretical development and applications of this framework, there has recently been a few applications in Information Systems on topics ranging from versioning and pricing of information goods Huang and Sundararajan forthcoming 2011), to optimal sampling strategy and digital rights management . In particular, Chellappa and Shivendu (2010) are among the first to embrace this approach in studying the market for personalization, where the amount and quality of personalization that can be offered to a customer is proportional to the amount of information that the firm has about her (Volokh 2000;Adomavicius and Tuzhilin 2002). The authors propose couponing as a compensation instrument in designing a segmenting mechanism to address consumers' intrinsic privacy concerns associated with sharing personal information.…”

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Resolving the Personalization-Privacy Dilemma: Theory and Implications of a Privacy-Preserving Contract

Sin

Jia

2010

SSRN Journal

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Personalization is an integral part of e-commerce strategy today. A unique feature of personalization is that it requires users to provide a certain amount of personal information to the service provider, thus giving rise to an interesting dilemma in that consumers cannot enjoy more personalized services without sacrificing more privacy. In this paper, we propose a mechanism that allows an online personalization vendor to provide proper incentives for consumers to share information, while protecting their privacy at the same time. The proposed solution not only enables consumers and the firm to engage in an otherwise unviable market, but it also allows the firm to implement an incentive-compatible menu that serves all consumers regardless of their privacy sensitivity. Further, we demonstrate that a minimum privacy-preservation policy is an effective device for protecting consumers' online privacy, and that it outperforms restricting vendors' ability in collecting customer information. Our proposed mechanism is of theoretical and practical importance: By transforming the compensation schedule (privacy preservation) into a set-compliment device to the production variable, our approach offers an alternative to the reliance on external transfer, thus eradicating a major constraint confronted by traditional mechanism design. Practically, our research proposes a realistic, easilyimplementable solution to the fervent calls for endowing consumers with greater control over their online privacy. Further, it offers important policy guidelines to the regulator on not only what devices can be applied in governing the information practice of online vendors, but also exactly how social-efficiency can be enhanced.

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“…This relationship is assumed to be deterministic, and is common knowledge to all parties in the market. Similar treatments can be found in Chellappa and Shivendu (2010).…”

Section: Literature Reviewsupporting

confidence: 57%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

Resolving the Personalization-Privacy Dilemma: Theory and Implications of a Privacy-Preserving Contract

Sin

Jia

2010

SSRN Journal

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“…Unlike in Sundararajan (2004) and Chellappa and Shivendu (2008), we investigate the strategies of a capacity constrained vendor who offers a maximum of ( )…”

Section: Online Firm Strategiesmentioning

confidence: 99%

Competing in the Presence of Privacy Concerns: A Model of the Market for Customer Information

Chellappa

Sin

2008

SSRN Journal

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There is "no free disposal" (NFD) in the consumption of online personalization services, as this activity inherently involves sharing of personal and preference information that creates disutilities to the consumer. Not only are more services not necessarily better for the consumer, but these services are also provided for free as firms extract value from the usage of consumer information rather than from directly pricing the services. Further, the services themselves may be provided to a consumer as a fixed-length toolbar/deskbar (fixed-services strategy) or with the option of choosing a subset of the portfolio of services offered (variable-services strategy). This paper models a duopoly of firms that are heterogeneous in their marginal value for consumer information (MVI) and interact through a two-stage dynamic game, where the firms choose a fixed-or variable-services strategy in the first stage and their level of services offering in the second. After examining a series of subgame equilibria, we arrive at distinct subgame-perfect Nash equilibriua (SPNEs) that allows us to characterize competition between firms of different MVI endowments. Our findings suggest that while there is no SPNE in a duopoly of two small firms, when one firm is small and the large, there is a unique SPNE in pure strategies where both firms offer fixed-services such that they segment the market. As the differences in their valuations increase, the larger firm continues to offer fixed-services while smaller firm enjoys the option of offering variable services. A duopoly of large firms results always results in symmetric SPNE; both firms offer variable services as long as one firm has very large MVI and both offer fixed-services otherwise. Interestingly while the former is consumer welfare maximizing, the latter results in a third of the market (consisting of privacy seekers) not being served. Our results lead to important managerial and policy implications, as well as interesting extensions to the existing location models.

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“…In addition, all other things equal, some users may prefer the older generation platforms in spite of all the new bells and whistles of the newer generations. This is due to the fact that many IT platforms exhibit no free disposal Freimer 2003, Chellappa andShivendu 2010) whereby more is not always better for some of the usersupdates in functionality may complicate the interface, require additional resources, and may lead to integration breakdown. The backward compatibility for services, in parallel with price markdowns for older generations, may be enough to expand the market and bring in some of the potential adopters who did not deem any of the platform generations worthwhile in isolation before.…”

Section: Introductionmentioning

confidence: 99%

The Double-Edged Sword of Backward Compatibility: The Adoption of Multigenerational Platforms in the Presence of Intergenerational Services

Hann,

Koh,

Niculescu

2016

Information Systems Research

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We investigate the impact of the intergenerational nature of services, via backward compatibility, on the adoption of multi-generational platforms. We consider a mobile Internet platform that has evolved over several generations and for which users download complementary services from third party providers. These services are often intergenerational: newer platform generations are backward compatible with respect to services released under earlier generation platforms. In this paper, we propose a model to identify the main drivers of consumers' choice of platform generation, accounting for (i) the migration from older to newer platform generations, (ii) the indirect network effect on platform adoption due to same-generation services, and (iii) the effect on platform adoption due to the consumption of intergenerational services via backward compatibility. Using data on mobile Internet platform adoption and services consumption for the time period of 2001-2007 from a major wireless carrier in an Asian country, we estimate the three effects noted above. We show that both the migration from older to newer platform generations and the indirect network effects are significant. The surprising finding is that intergenerational services that connect subsequent generations of platforms essentially engender backward compatibility with two opposing effects. While an intergenerational service may accelerate the migration to the subsequent platform generations, it may also, perhaps unintentionally, provide a fresh lease on life for earlier generation platforms due to the continued use of earlier generation services on newer platform generations.

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Mechanism Design for 'Free' But 'No Free Disposal' Services: The Economics of Personalization under Privacy Concerns

Cited by 16 publications

References 23 publications

Resolving the Personalization-Privacy Dilemma: Theory and Implications of a Privacy-Preserving Contract

Resolving the Personalization-Privacy Dilemma: Theory and Implications of a Privacy-Preserving Contract

Competing in the Presence of Privacy Concerns: A Model of the Market for Customer Information

The Double-Edged Sword of Backward Compatibility: The Adoption of Multigenerational Platforms in the Presence of Intergenerational Services

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